U. S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 18103A / April 25, 2003
COMMISSION FILES EMERGENCY ACTION AGAINST 1^ST ATLANTIC GUARANTY
CORPORATION
, Civil Action No. 03-CV-1213 DKC (D. Md.)
The Securities and Exchange Commission ("Commission") announced that,
on April 23, 2003, it filed an emergency civil action in the United
States District Court for the District of Maryland, against defendant
1st Atlantic Guaranty Corporation ("1st Atlantic"), of Bethesda,
Maryland. 1st Atlantic is a face-amount certificate company registered
with the Commission pursuant to the Investment Company Act of 1940. A
face-amount certificate company is a specialized type of investment
company that issues fixed-income debt securities, agreeing to pay the
principal amount of the instruments plus accrued interest on maturity.
The Honorable Catherine C. Blake, upon motion of the Commission,
entered emergency relief, including a temporary restraining order and
freeze of payments to certificate holders, against the defendant, and
scheduled a hearing on the Commission's motion for appointment of a
receiver for May 5, 2003, with a preliminary injunction hearing to be
scheduled thereafter. First Atlantic, without admitting or denying the
allegations of the complaint, consented to the entry of the temporary
restraining order and freeze of payments.
The Commission's complaint charges 1st Atlantic with violating
Sections 28(a) and 28(b) of the Investment Company Act, and seeks
permanent injunctive relief. The complaint alleges that, from at least
September 2001 to the present, as a result of the transfer of certain
assets previously held by it, 1st Atlantic has been and is operating
with reserves well below the legal minimum required by the Investment
Company Act. Between 1998 and 2002, the former chief executive officer
and chairman of 1st Atlantic diverted approximately $1 million from
1st Atlantic and transferred assets with a value of more than $2.8
million to a subsidiary without consideration.
The complaint further alleges that, in an attempt to cover its reserve
deficiency, in September 2001, 1st Atlantic began to improperly count
the value of the common stock of its subsidiary, State Bond and
Mortgage Company, LLC ("State Bond") as a "qualified investment."
However, the stock of State Bond is not a qualified investment, as
defined under the Investment Company Act and, therefore, cannot be
counted by 1st Atlantic towards its reserve requirement. Without that
asset, 1st Atlantic has qualified investments of only $450,000 to pay
certificate liabilities of more than $4 million and is operating in
SNIPPETS:
U. S. SECURITIES AND EXCHANGE COMMISSION
COMMISSION FILES EMERGENCY ACTION AGAINST 1^ST ATLANTIC GUARANTY CORPORATION
The Securities and Exchange Commission announced that, on April 23, 2003, it filed an
A face-amount certificate company is a specialized type of investment company that issues
The Honorable Catherine C. Blake, upon motion of the Commission, entered emergency relief,
First Atlantic, without admitting or denying the allegations of the complaint, consented to
The Commission's complaint charges 1st Atlantic with violating Sections 28and 28of the
The complaint alleges that, from at least September 2001 to the present, as a result of the
The complaint further alleges that, in an attempt to cover its reserve deficiency, in
However, the stock of State Bond is not a qualified investment, as defined under the
Under the terms of the certificates, holders are entitled to demand immediate redemption
The Commission's motion for emergency relief sought to address these concerns.
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